Gujarat High Court
Bhagvati Banquets And Hotels Ltd vs Dy. Commissioner Of Income Tax on 6 July, 2017
Author: Biren Vaishnav
Bench: Akil Kureshi, Biren Vaishnav
C/SCA/323/2014 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 323 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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BHAGVATI BANQUETS AND HOTELS LTD.....Petitioner(s)
Versus
DY. COMMISSIONER OF INCOME TAX....Respondent(s)
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Appearance:
MR SN DIVATIA, ADVOCATE for the Petitioner(s) No. 1
MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 06/07/2017
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE BIREN VAISHNAV) Page 1 of 26 HC-NIC Page 1 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT 1 Petitioner is a Public Limited Company engaged in the business of hospitality and outdoor catering. Challenged before us is a notice under Section 148 of the Income Tax Act, 1961, issued to the petitioner Assessee on 26.03.2013.
2 Facts which have given rise to this challenge are as under:
2.1 For the Assessment Year 20082009, the petitioner had filed its Ereturn on 19.01.2009 declaring total income of Rs.14,40,91,411/ Subsequently, the petitioner filed, first revised return on 31.03.2009 and second revised return on 17.02.2010, showing an income of Rs.13,88,33,290/ 2.2 The return of the petitioner - assessee was selected for scrutiny after regular assessment held under Section 143(3) of the Income Tax Act, 1961. Pursuant to such scrutiny held, an Assessment Order was issued on 21.12.2010 for the Assessment Year in question i.e. 20082009.
The Revenue issued notice under Section 148 of the Income Tax Act on 26.03.2013.
2.3 By a letter dated 25.04.2013, the petitioner Page 2 of 26 HC-NIC Page 2 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT sought a copy of the reasons, for which the Revenue was of the opinion that the income had escaped the assessment for the assessment year in question.
2.4 The Revenue by a communication dated 06.08.2013, supplied the petitioner assessee the reasons for reopening the assessment for the Assessment Year 20082009. The reasons for reopening the assessment reads as under:
" Assessee company engaged in business of hotel, banquet and restaurant activity, filed its return of income for A.Y. 200809 on 19.01.2009 declaring total income of Rs.14,40,91,411/, which was revised on 31.3.2009 by retaining same total income. The return was again revised on 17.2.2010 declaring total income at Rs. 13,88,33,290/ The case was completed under scrutiny manner on 21.12.2010 determining total income at Rs.15,09,03,666/ 1 On verification of the case records, it is seen that assessee has charged the profit and loss account with IPO expense written off to the tune of Rs.1,17,14,943/ being onefifth of total expense of Rs.5,85,74,716/ income as preoperative expense for its Surat Project. It is observed from records that the expenses are incurred for setting up a new hotel at Surat. Thus, the IPO expense incurred by the assessee is in capital nature and not deductible under the head of income "profits and gains of business or profession" except under the provisions of Section 35D of the Act. However, the expenses incurred as IPO expense did not qualify for deduction under Section 35D of the Act for the reason that, at Page 3 of 26 HC-NIC Page 3 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT the time of incurring expenses on issue of public offer of shares, assessee is already engaged in hotel (accomodation and catering) business at Ahmedabad. Thus, assessee had already 'commenced business' at the time of public issue of shares. Thus, the expense incurred was for the purpose of expansion of its existing business and was therefore, not covered by Section 35D(1)(i) of the Act. Secondly, assessee's business is in the nature of providing service (hospitality) and is not engaged in 'industrial' activity as envisaged in Section 35D(1)(ii) of the Act. Hence, deduction under Section 35D(1)(ii) of the Act too is not available to assessee for extension / expansion of its business. Reliance is placed on the judgment of the Hon. High Court of Delhi in the case of Ansal Housing and Construction Ltd vs. CIT [2010] 320 ITR 420 (Delhi). Hence, the deduction of Rs.
1,17,14,943/ in respect of IPO expenses written off is irregular and disallowable. 2 As per section 14A of the I.T.Act, 1961, expense incurred for earning income which does not form part of total income shall be disallowed. The disallowance shall be made in terms of Rule 8D.
On verification of the case records, it is seen that an amount of Rs.8,71,250/ being 0.5 percent of the average investments in accordance with Rule 8D(2)(ii) was disallowed in respect of exempt dividend income of Rs.97,28,550/ However, proportionate interest expense of Rs.18,45,734/ [Rs 98,03,000/ (interest) *Rs 17,41,03,887/ (Avg Invest) Rs. 92,46,94,500/ (Avg Asset)] as prescribed in RULE 8D(2)(ii) is not disallowed. In this case, assessee has not disallowed any expense against the dividend income earned in the original return or in the two revised returns filed thereafter. The disallowance of expense against earning exempt income by the assessee was neither made in the return filed, nor was such disallowance made at the time of filing Page 4 of 26 HC-NIC Page 4 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT revised returns as per Goetz (India) Ltd vs. CIT [2006] 157 Taxman 1(SC). The method for determining disallowable expenses was introduced vide Rule 8D w.e.f. A.Y. 200809. In view of these facts, the disallowance of expenses under section 14A of the Act required to be determined in terms of Rule 8D prescribed in the Income Tax Rules. It has led to escapement of Rs.18,45,734/ In light of the above, I am of the view that this is a fit case for 'income escaping assessment under Sec. 147 of the I.T.Act. Therefore, the undersigned has reason to believe that the income chargeable to tax for the year under consideration has escaped assessment as per the provisions of Section 147 of the I.T.Act.
2.5 On supply of such reasons for reopening of assessment, the petitionerassessee filed objections on 04.12.2013. Pursuant to the objections so filed, the department rejected the objections under a communication dated 18.12.2013.
2.6 During the pendency of the petition, notice was issued and interim relief was granted that the respondents may proceed with the assessment but no final order be passed. However before the interim relief was granted, an Assessment Order dated 27.01.2014 was passed. The interim relief therefore was modified restraining the Page 5 of 26 HC-NIC Page 5 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT respondents from carrying out coercive action. Therefore even the Assessment Order dated 27.01.2014 is also a subject matter of challenge in this petition.
3 The notice under Section 148 of the Income Tax Act, 1961, was issued within a period of four years, for the Assessment Year 20082009, on 26.03.2013. According to the Revenue, the reasons to believe that income had escaped assessment put forth were essentially three as narrated in number.
3.1 To put briefly, the reasons so recorded are:
(i) The Income Tax Authorities found that the assessee had charged the profit and loss account with IPO expense written off to the tune of Rs.1,17,14,943/ as being one fifth of total expense of Rs.5,85,74,716 income as pre operative expense for its Surat Project. In the opinion of the Assessing Authority it was also observed that such expenses were incurred for setting up a new hotel at Surat. According to the authority, such IPO expenses incurred by the assessee was in the nature of capital Page 6 of 26 HC-NIC Page 6 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT expenditure and did not qualify for deduction under the head as income from "profits and gains of business or profession". According to the Revenue, such expenses did not qualify for deduction under Section 35D of the Act in view of the fact that when such expenses were incurred the assessee was already engaged in the hospitality business (accomodation and catering). In the opinion of the Revenue, since the assessee had already commenced business, it was not entitled to such exemption.
(ii) The second reason for reopening of assessment was that the assessee was engaged in the business of providing hospitality services and was not engaged in " industrial activity"
as envisaged under Section 35D(1)(ii) of the Act, and therefore, deduction under the provisions of Section 35D(1)(ii) was not available to the assessee.
(iii) The third ground on which it was thought fit for the Revenue to reopen the assessment was that the authority was of the opinion that an amount of Rs.8,71,250/ being 0.5 percent of Page 7 of 26 HC-NIC Page 7 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT the average investments was disallowed in respect of exempt dividend income of Rs.97,28,550/. According to the Revenue, the proportionate interest expense of Rs.18,45,734/ was not disallowed in accordance with Rule 8D(2)(ii) of the Income Tax Rules.
According to the Revenue, such disallowances of expense against income by the assessee was neither made in the return filed nor was such disallowance made at the time of filing revised returns. According to the Revenue, therefore, this led to escapement to the extent of Rs.18,45,734/ 4 Mr S N Divatia, learned advocate for the petitioner has contended that, once the petitioner's Income Tax Returns were assessed and scrutinized under Section 143(3) of the Income Tax Act, and that during the exercise of such scrutiny the authorities were communicated explanations and details relating to various points including the point in issue for which exercise of reopening the reassessment is undertaken, it was not open for the Revenue to reopen the assessment in exercise of powers under Section 148 of Page 8 of 26 HC-NIC Page 8 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT the Income Tax Act.
4.1 According to Mr Divatia, learned advocate for the petitioner, as is evident from reading the reasons supplied by the Revenue, the first two issues on which the Revenue thought it fit to reopen the assessment was with regard to the question on exemption under Section 35D of the Income Tax Act,1961.
4.2 Mr Divatia, learned advocate for the petitioner has taken us through the various communications which the assessee had entered into with the Revenue on the question of applicability of Section 35D of the Income Tax Act. The communications on which it will be in the fitness of things to refer to are as under:
(A) Communication dated 26.08.2010. By this communication, in compliance of reference to the scrutiny assessment, the assessee had in detail pointed out the working of the deduction under Section 35D. Calculation is shown in ledger accounts of the preliminary expenses, proof of stamp duty and filing fees etc were Page 9 of 26 HC-NIC Page 9 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT produced during the course of scrutiny.
(B) By communication dated 29.11.2010, once again details of calculation for the amount of deduction that have been worked out under Section 35D of the Income Tax Act were produced before the Revenue.
A specific note to such communication explained extensively as to how the assessee was entitled to exemption under Section 35D of the Income Tax Act. In the aforesaid note, the assessee had categorically explained as to how it had come to a figure of Rs. 1,17,14,943/ as onefifth of the total amount of Rs.5,85,74,716/ towards the IPO expenses. Ledger Accounts for the IPO expenses were also produced together with this communication dated 29.11.2010. Note on allowability of Deduction u/s. 35D The Company had gone for IPO during the relevant Assessment Year to startup its new ambitious 5 Star Hotel Project at Surat. The main agenda behind the IPO was to setup the new Hotel and expand the business to better Page 10 of 26 HC-NIC Page 10 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT levels.
Since the All the IPO and enhancement of equity capital related statutory fees paid to ministry of Corporate Affairs or any other Statuary liabilities, were directly correlated with new project at Surat, hence such expenses should not be disallowed u/s.35D as amortisation of preliminary expenses.
IPO Expenses (Under the head PreOperative Expenses Surat Project) Opening Balance Rs. 25,35,466/ Total Expenses towards IPO during the F.Y 200708 Rs. 5,60,39,250/ Total Rs.5,85,74,716/ 1/5 writtenoff during the year Rs.1,17,14,943/ (C) As far as disallowances under Section 14A of the Income TaX Act is concerned, Mr Divatia, learned advocate for the petitioner, drew our attention to the communication dated 14.12.2010. A calculation was offered with this Page 11 of 26 HC-NIC Page 11 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT communication to show that an amount of Rs.8,70,520/ was offered as administrative charges at the rate of 0.50% of the average investments for tax. Calculation were so categorically pointed out in compliance of Rule 8D(2)(ii) of the Income Tax Rules.
5 In other words, it was the contention of the learned advocate for the petitioner that once the exercise of scrutiny assessment is undertaken under Section 143(3) of the Income Tax Act and once having been satisfied with the documents presented on the questions so raised, it was not open for the Revenue to issue a Notice only on the ground of 'Change of opinion' under Section 148 of the Income Tax Act.
5.1 Mr Divatia, learned advocate for the petitioner, has also invited our attention to the Assessment Order dated 21.12.2013 issued under Section 143(3) of the Income Tax Act, wherein in paragraph 5 of the Assessment Order, the Assessing Authority has consciously dealt Page 12 of 26 HC-NIC Page 12 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT with the issue of exemption under Section 35D of the Income Tax Act and on the question of disallowance under Section 14A of he Act. Relevant paragraph of the Assessment Order are reproduced hereunder:
"5 Expenses for increase in Authorized Share Capital 5.1 It is seen that the authorized share capital of the assessee company has increased from Rs. 30Crores to Rs. 50 crores.
Accordingly, the assessee was requested to explain where the expenses for increase in authorized share capital recorded in its books of account. In this regard, the assessee vide letter dated 14.12.2010, has stated that total expenses of Rs.10,50,000/ were incurred towards increase in authorized share capital of the company which have been debited under the head 'Miscellaneous Expenditure' in ScheduleK, out of which 1/5th amounting to Rs.2,10,000/ has been written off during the year. The assessee claimed that the said amount is allowable u/s. 35D.
5.2 The contention of the assessee has been considered. These expenses are not eligible for deduction u/s. 35D as it does not fall within the nature of expenses specified in 35D(2). Even otherwise, relying on the jurisdictional High Court decision reported in M/s. Vareli Textiles Ltd 284 ITR 238(Guj), which has followed the decision of Supreme Court reported in 225 ITR 798 (SC) in Brooke Bond India vs CIT holding the said expenditure as capital in nature and is not allowable as expenditure u/s. 37(1). Accordingly, a sum of Rs.2,10,000/ is disallowed and added to the income. Penalty u/s.271(1)(c) is separately being initiated for furnishing inaccurate particulars of income.
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6 xxxxxx xxxxxxxxxxx xxxxxxxx
7 Disallowance u/s. 14A:
7.1 Perusal of the accounts show that the
assessee has opening investment of Rs.5 crores and closing investment of Rs.29.82 crores. In the computation of income, the assessee has shown dividend income Rs.97,28,550/ which has been claimed exempt. In this regard, the assessee was asked to explain why no expenses incurred in relation to earning of the exempt income be not disallowed u/s.14A."
6 Mrs Mauna Bhatt, learned advocate for the Revenue has opposed the petitioner and contended that the powers under Section 148 of the Income Tax Act were exercised bonafide. According to Mrs Mauna Bhatt, there was enough tangible material before the authorities to come to a conclusion or "reason to believe" that the income for the Assessment Year in question has escaped the assessment. According to Mrs Bhatt, once the exercise of reopening the assessment was undertaken under Section 148 of the Income Tax Act within a period of four years based on tangible material, it is not open for this Court in exercise of powers under Article 226 of the Constitution of India to substitute its view when the authorities have found sufficient material to come to a conclusion that the Page 14 of 26 HC-NIC Page 14 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT income has escaped assessment so as to warrant exercise of powers under Section 148 of the Income Tax Act.
7 It is in light of these factual aspects and the submissions made by the learned advocate for the respective parties, that we need to decide whether the Revenue had exercised the power to reopen the assessment under Section 148 of the Income Tax Act within the parameters of law.
8 As has been reproduced herein above, primarily, the reasons for reopening of the assessment or "reasons to believe", or which the authorities have thought it fit to reassess the income on the ground that the income has escaped the assessment has been essentially on two grounds:
(i) That the assessee was not entitled to deductions under Section 35D of the Income Tax Act on an amount of Rs.1,17,14,943/ being 1/5th of the total expense on account of the fact that the assessee had already commenced business and that even otherwise Page 15 of 26 HC-NIC Page 15 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT since it was not an industrial undertaking benefit of Section 35D was not available to the assessee.
(ii) The second ground was on the question of disallowance on the question of Section 14A of the Income Tax Act. According to the Revenue, proportionate interest expense of Rs.18,45,734/ was not included for disallowance, and therefore, as such the income to that extent had led to escapement of income.
9 Question that needs to be answered is that if during the exercise of scrutiny and consequential assessment order under Section 143(3) of the Income Tax Act when there was an extensive exchange of communications and production of records, which ultimately led to the satisfaction of the authority for passing of order under Section 143(3) and concluding the issues at hand, would it be open for the Revenue to exercise powers under Section 148 of the Act.? Would such exercise of powers be nothing but "Change of Opinion"?
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10 As canvassed by learned advocate Mr Divatia for the petitioner, and having gone through the communications on record, what is evident is that from various communications addressed to the Revenue in compliance of the reference to the scrutiny assessment for the Assessment Year 20082009, the assessee had extensively, with ledger accounts explained the working out of the assessee's deductions under Section 35D of the Income Tax Act. A note on liability of deduction under Section 35D explaining how the figure of 1,17,14,943/ towards 1/5th written off expenses for the IPO expenses was extensively explained in such communications. Even on the question of section 14A of the Income Tax Act, in the communications, particularly, in communication dated 14.12.2010, the assessee had in compliance of Rule 8D(2)(ii) of the Income Tax Rules explained how Section 14A is complied with.
11 Even the Assessment Order dated 21.10.2010 expressly deals with the issues in paragraphs 5 and 7 of the Assessment Order under Section 143(3) of the Page 17 of 26 HC-NIC Page 17 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT Act. The Assessment Order also records that the assessee has put on records and from the accounts it is demonstrated that the source of investment is out of interest free funds. The Assessment Order further records that with regard to administrative expense, the assessee has offered 0.5% of the average investment as disallowance under Section 14A amounting to Rs.8,71,250/ The Assessment Order further records that considering the details, the disallowance offered by the assessee during the assessment proceedings is accepted and disallowance of Rs.8,71,250/ is made u/s.14A.
12 Perusal of the "reasons to believe" indicate that the exercise of reopening the assessment under Section 148 is on the same grounds, and therefore, it is nothing but an exercise carried out which tantamounts to 'change of opinion'.
13 What is evident from the facts on hand is that the Assessment Order itself records that after a due scrutiny and on exchange of communications inter se between the assessee and the Revenue, a satisfaction Page 18 of 26 HC-NIC Page 18 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT was arrived by the Revenue Authorities while passing order under Section 143(3) of the Income Tax Act. In the case of Commissioner of Income Tax , New Delhi vs. Usha International Ltd., reported in [2012] 25taxmann 200 (Delhi), the word "Change of Opinion"
came up for consideration before the Court. The Delhi High Court observed as under:
"13 It is, therefore, clear from the aforesaid position that:
(1) Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee.
Reassessment proceedings in the said cases will be hit by principle of "change of opinion".
(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons."
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14 In the observation of the High Court, the reassessment proceedings would be invalid in a case where the Assessment Order itself records that the issue was raised and was decided in favour of the assessee. In the opinion of the Court, in such a case, the proceedings would be hit by principle of 'change of opinion'. As is evident from the facts of the case on hand that after exchange of extensive communications between the assessee and the Revenue, a conclusive satisfaction has been arrived at during the scrutiny under Section 143(3) of the Income Tax Act. It was not open for the Assessing Authority to exercise powers under Section 148 of the Income Tax Act merely because it took a different view. 15 In the case of Gujarat Power Corpn. Ltd vs. Assistant Commissioner of Income Tax, reported in [2013] 350 ITR 266 (Gujarat), the Division Bench of this Court considering the question of reassessment under Section 148 of the Act under similar circumstances found that, during the course of original assessment, the Assessing Officer had raised several queries with respect to certain claims.
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Detailed replies were furnished by the assessee. The Court on facts found that when an Assessment Order is framed and the claim of the assessee is examined and found to have been in compliance of the provisions, mere 'change of opinion' would not give a window to the Revenue to exercise powers under Section 148 of the Income Tax Act. The relevant paragraphs of which reads as under:
" 42. Bearing in mind these conflicting interests, if we revert back to central issuein debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, whileframing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated thathe did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If Page 21 of 26 HC-NIC Page 21 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT the Assessing Officer is burdened with the responsibilityof giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, inour opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position.It may be a non reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrarypowers to the Assessing Officer.
43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.
44. At this stage, we may examine the decision of the Division Bench of this Court in the case of Praful Chunilal Patel v. M. J. Makwana, Assistant Commissioner of Income Tax, (supra) more closely. This was a case wherein assessment previously framed under section 143(3) of the Act was sought to be reopened within a period of four years from the end of the relevant assessment Page 22 of 26 HC-NIC Page 22 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT year. The case concerned assessment year 199394 and therefore, the amended section 147 of the Act was applicable. On certain claims of the assessee which were not rejected by the Assessing Officer in the scrutiny assessment, the court held that in cases where the Assessing Officer has not made an assessment of any item of income chargeable to tax while passing the assessment order, it cannot be said that such income was subjected to an assessment. The court was of the opinion that in the original assessment, the Assessing Officer never really formed an opinion on a particular contentious issue. It was in this background that the Court was of the opinion that since no opinion was formed in this regard, consequently there would be no question of a mere change of opinion. The Court also expressed an opinion that in view of the explanation 2 to section 147 of the Act, power to make assessment or re assessment within four years would be attracted even in cases where there has been complete disclosure of all material facts."
16 Judgment of the Gujarat Power Corporation (Supra), has been followed in the case of Spunpipe and Construction Co. vs. Assistant Commissioner of Income Tax, reported in 362 ITR 559, this Court also considered the question as to whether it was open for the Assessing Authority to reopen the assessment on 'change of opinion', considering the judgment of the Court in the case of Gujarat Power Corporation, the Court observed as under:
"11. From the above documents it can be seen that during the scrutiny assessment, the claim of the petitioner for treating the income as capital gain was throughly scrutinized by the Assessing Officer. In his notice dated Page 23 of 26 HC-NIC Page 23 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT 16.12.2010, he pointedly inquired with the petitioner whythe sum of Rs.5.77 crores (rounded off) and the profitarising out ofthe said sum was treated as capital gain. According to the Assessing Officer in terms of section 28 of the Act, it was the petitioners business income. His second contention was that in any case the deduction under section 54G of the Act was not allowable. The petitioner filed detailed replies on 21.12.2010 and on 22.12.2010. Insuch replies, he tried to persuade the Assessing Officer on both counts, that is, on the question of treating the income as capital gain and simultaneously justifying thepetitioners claim for deduction under section 54G of the Act. The petitioner pointed out that having converted its capital asset into stockintrade, under section 45(2) of the Act the income upto the point ofsuch conversion should be treated as long term capital gain. In various places in the said two communications, the petitioner raised this contention. It was only after considering such replies of the petitioner that the Assessing Officer passed the order of assessment. Insuch order of assessment, he gave no reasons for not treating the income as a business income instead of capital gain but gave detailed reasons why petitioners further claim for deduction under section 54G of the Act should be rejected.
12. From the above, it clearly emerges that the Assessing Officer had a full innings of complete scrutiny of the question and the manner in which the income should be taxed. He initially held a belief that such income was a business income of the assessee. This is precisely why he called upon the assessee to explain. The assessee gave two detailed replies and relied on section 45(2) of the Act. It was only thereupon that the Assessing Officer did not change the head of the income but made disallowance by not accepting the petitioners claim for deduction under section 54G of the Act. Thus the Assessing Officer accepted the petitioners claim of treating the income as capital gain. Only then the question of granting Page 24 of 26 HC-NIC Page 24 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT or refusing deduction under section 54G would arise.
13. It is precisely this ground which the Assessing Officer wishes to press in service for reopening of assessment.According to him such income should be treated as a business income and not capital gain. We fail to see how he can be permitted to do so. In the original assessment having examined the issue fully, any attempt on the part of the Assessing Officer to reopen the assessment would be nothing but a change of opinion."
17 On the application of the aforesaid judgments of this Court, what is apparent on seeing the records of the present case is that during the scrutiny assessment, the claims of the petitioner were thoroughly scrutinized and an Assessment Order was accordingly passed on 21.12.2010. From the communications on record which were exchanged inter se between the assessee and the Revenue, it is apparent that on being satisfied with the questions that were answered by the assessee, the Revenue passed an order under Section 143(3) of the Income Tax Act and the question of Section 35D and Section 14A of the Income Tax Act stood concluded.
18 It is apparent from "reasons to believe" that Page 25 of 26 HC-NIC Page 25 of 26 Created On Sun Jul 23 17:36:41 IST 2017 C/SCA/323/2014 JUDGMENT the "reasons to believe", are nothing but mere 'Change of Opinion'. As held by this Court in the decisions referred to hereinabove, it is not open for the Revenue to reopen the assessment in exercise of powers under Section 148 of the Income Tax Act only under the pretext of 'Change of Opinion'. Accordingly, the notice dated 26.03.2013 issued under Section 148 of the Income Tax Act and the consequential Assessment Order dated 27.01.2014 passed by the respondents is quashed and set aside. Rule is made absolute to the aforesaid extent.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Bimal Page 26 of 26 HC-NIC Page 26 of 26 Created On Sun Jul 23 17:36:41 IST 2017